The 3 final steps to your bonus calculations

The 3 final steps to your bonus calculations

It’s bonus time and you have prepared all your calculations as per the rules laid out. Before going to your CEO to show her the numbers, go through this checklist to ensure you have covered most angles and provide value to the discussion.

Check the eligibility list one last time. Who are your new joiners ? Do you prorate bonus for them, and if so, did you check that this was incorporated into your formulas ? Conversely, some companies decide that even if an employee has worked the whole year, they have to be still employed in order to get the bonus payout. If that is the case, you should ensure that the leavers are taken off your list, including people on notice period if appropriate. How do you handle your trainees ? Your international assignees ? Are there special rules for certain job families / grades / categories of employees ?

Perform tests. Do a manual calculation for random employees in each of the categories for which you calculate bonus in a different way. Check every single exception if there are any. The random tests will either reveal some errors, which you now have time to fix before you go to the Executive Leadership Team, or they will give you reassurance that everything is in order.

In my experience, the ELT will sometimes require some last minute changes. Often, you can anticipate some of these because thereare  often “grey” situations in bonus calculations, especially around exceptions and special cases. One way to support the ELT is if you run, beforehands, some what-if scenarios. This way you will be able to come back immediately to some of their questions.

Finally, compile and compare. Prepare a statiscal overview to help all parties involved understand the numbers. The overall spend is of course useful, but rarely enough. At bare minimum, you should track :

  • the number of eligible employees
  • the spend by bonus pool (if you have multiple elements in your bonus calculation)
  • the average bonus amount per employee
  • and how much the average payout represents as a percentage of target bonus (eg : are we paying on averge 87% of target bonuses, or 112 % ?).

And to make this more meaningful, compare these numbers to the past 2-3 years. Do the numbers make sense ? Are they aligned with company performance ?

Having (at least partial) answers and simulations as well as statistics about the bonus spend ready before the meeting with the top leadership of your organisation will help accelerate the decision-making. Yes, it is a bit more work than just producing the calculations. But it is definitely worth the extra effort as it will make you shine as a true value-adding business partner to your top management.


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  1. Navreet Sarkaria says

    The point on comparing the bonus payout with the past data of 2 to 3 years makes so much sense. These small steps really add value as a strategic partner to the business.

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